Re-Envision Business Models
Using analytics to reliably predict future behavior can do more than allow a company to increase sales or improve efficiencies. The unprecedented level of actionable insight from predictive analytics can also enable companies to re-imagine their business models and basic value proposition. Used adroitly, predictive analytics can erase barriers between industries, opening up entirely new profit streams.
In Italy, for example, insurance companies face the highest frequency of auto accidents and highest average claims in Europe. At the same time, price-comparison websites have intensified competition, tightening profit margins on policies.
In response, one large insurance firm installed black boxes in their customers’ cars, which gathered, stored, and analyzed data about their driving habits, such as how fast they took corners or how smoothly they applied brakes. This allowed the insurer to predict their likelihood of having a crash, and also let the insurer incentivize poor drivers to change their habits.
While this approach fine-tuned the insurer’s existing business, predictive analytics has helped transform their business. As a result of the actionable data, the insurer has developed new business models, called “Pay as You Drive” or “Pay How Your Drive,” which charge people based on their actual driving habits rather than on more traditional and more hazy predictors like age, gender and driving experience. At the same time, the information allows the insurer to roll out new services, such as fuel management and remote diagnostics that previously were outside the scope of their industry.
When developing the business case for predictive analytics, think beyond improving your current processes. The power of predictive analytics can be in providing new insights that transform what you do—moving you into profitable new areas that may disrupt your industry.